Small Traders Upset With GST Compliance Hassles

The time and effort needed to grow the business is now diverted to ensure compliance with the GST regime. The rigid provisions of input tax credit (ITC) have also robbed them of hard-earned liquidity and disrupted their cash-flow cycle.

“Traders are caught in a compliance web, a dilemma whether to grow their business or abide by the requirements of the new tax regime. Woh business karega ke din bhar yahi karta rahega (Should they focus on their business, or just on complying with GST requirements)? While our working capital is stuck, corporates are making good money,” said Kolkata-based Sushil Poddar, president of the Federation of All India Vyapar Mandal, an apex body of trade associations across the country. 

Introduced on July 1, 2017, GST is applied to all traders with an annual turnover of Rs 40 lakh or more, and service providers with an annual turnover of Rs 20 lakh or more. Businesses with a turnover up to Rs 1.5 crore can avail of a composition scheme, where they have to pay a flat 5 per cent GST on the turnover.

Delayed Input Tax Credit, Compliance Complicated

But then they are not entitled to ITC, in which a trader gets credit on the tax he paid while buying raw material. Additionally, those traders who are entitled to ITC say they don't receive it on time. Their money is lying with the government, depriving them of much-needed working capital.

Pratap Chandan, chairman of Khadyatel Vepari Mahamandal, a body of edible oil merchants, said the exemption limit of Rs 40 lakh is meagre, bringing a large chunk of traders — who aren't conversant with technology and rely on hand-made bills — under the tax net.

GST is an Information Technology (IT) based regime, necessitating a big adaptation by businessmen. They have to hire computer-savvy accountants, leading to additional expenditure. “It is more complicated than Value Added Tax (VAT). Filing returns is a complicated process. We have to file monthly, quarterly, and annual returns, raising anxiety. Most traders are still not conversant with it,” Chandan told The Secretariat.  

What is most concerning are the penalty provisions for non-compliance, which can severely impact the topline and bottomline of a business. A small mistake in filing returns can lead to a heavy penalty, with no appellate authority for grievance redress. “It's a sword hanging over our necks. Business margins are wafer-thin, and penalties are huge. In such cases, making two ends meet is difficult,” he said. 

Why Traders Are Upset

A noted tax practitioner and Gujarat High Court advocate told The Secretariat that when multiple taxes were subsumed under the GST, it was claimed that compliance and filing of returns would be reduced.

But businessmen are more upset now. “The number of returns has decreased, but the situation is more tense,” he said. Highlighting the concerns, he said that a small mistake or anomaly in returns can't be corrected later on, while a return claim can be filed only after paying the tax. With the business cycle being 90-120 days for most traders, they have to pay the tax upfront even before receiving payment. 

He also drew attention to a discrepancy in provisions that mandate a penalty on traders who haven't complied on time, while tax officials enjoy immunity even if they don't take remedial action against complaints in a time-bound manner.

“According to the law, any appeal has to be addressed within a year. But even though several appeals are pending for five years or more, no action can be taken against the officials,” he said.